Chip deal: Avago Technologies buying LSI for $6.6 billion

NEW YORK -- Chipmaker Avago Technologies is buying LSI for $6.6 billion to help strengthen its position in the enterprise storage market and broaden its offerings.

Shares of both companies surged in Monday premarket trading.

LSI shareholders will receive $11.15 per share, a 40 percent premium to the San Jose company's Friday closing price of $7.94.

"This combination will increase the company's scale and diversify our revenue and customer base," Avago President and CEO Hock Tan said in a statement.

The transaction is expected to significantly and immediately add to Avago's adjusted earnings per share. The Singapore-based company said that it plans to fund the acquisition with $1 billion of cash as well as a $4.6 billion term loan from a group of banks and a $1 billion investment from the private equity firm Silver Lake Partners.

Abhi Talwalkar, president and CEO of LSI, seen in a 2006 file photo. Chipmaker Avago Technologies announced Monday is buying LSI for $6.6 billion. ( (Joanne Ho-Young Lee/Mercury News archives))

Silver Lake Partners teamed with Michael Dell for the $24.9 billion acquisition of Dell Inc. Avago said that Silver Lake's investment for the LSI transaction is expected to be a seven-year, 2 percent convertible note.